Proper Sales and Operations Planning (S&OP) is critical to supply chain success. If the forecasts are low, the organization stocks out and loses sales (and profits). If the forecasts are high, the organization gets stuck with excess inventory, that soon becomes obsolete (and that has to be sold at a loss just to move it). Supply chain success comes from accurate forecasts, which requires good Sales & Operational Planning.
But S&OP is more than just getting the product line managers to sit in a room and agree on a forecast, and it’s more than using good modelling and simulation software (which is a must). Proper S&OP planning is getting sales & marketing and operations (& product line management) together in a room working collaboratively towards a realistic and trustworthy forecast. All of these conditions are necessary.
1. It is not S&OP if you do not invite sales and marketing.
You can have the best forecasting models and software in the world, but they are still useless without the right demand data, which is only going to come from sales & marketing who can tell you what is selling and what changes in the market are likely to lead to increases or decreases in demand.
2. It is not S&OP if you are not working together as a cohesive group.
Just being in the same room is not enough. Both teams must be working towards the same goal, must believe in the process, and must trust the capabilities and insights of the other team. Just like operations must trust sales and marketing to provide real POS data and demand projections based on current campaigns and the state of the market, sales and marketing must trust that operations can build good models based on the data and schedule production and distribution accordingly.
Good examples of how not meeting these conditions can lead to failure are provided in Dr. Terry Esper’s recent article in the Supply Chain Management Review on Demand and Supply Integration: “Within and Across” Integration – The Key to DSI. Despite the introduction of yet another acronym to our space (DSI), and a bit of a long-winded introduction to the issue, it makes some good points and is definitely worth a read. It also provides three ideas to help you create a more cohesive S&OP team and process, which are worth noting:
- Better Performance Measures
the performance measures must facilitate integration
- Ownership Structure
there must be ownership of the S&OP process that includes both sides of the table
- Corporate Leadership
there must be leadership attention and focus on integration